Trinidad & Tobago among top 10 in resource governance

According to Revenue Watch’s Resource Governance Index, Trinidad and Tobago ranks 10th out of the 58 countries surveyed, scoring relatively high for publishing timely, regular reports on oil and gas production, prices and exports as well as sound Heritage and Stabilisation Fund governance.

The index report also credits Trinidad and Tobago for the quality and frequency of oversight and auditing of resource revenue, which is open to both parliamentary and public scrutiny. However, despite these strong points, the country has several areas for improvement including institutional reform to stem corruption, bolster the rule of law and improve budgetary transparency.

The Resource Governance Index measures the quality of governance in select oil, gas and mining sector countries worldwide. Together these 58 nations produce 85 percent of the world’s oil, 90 percent of diamonds and 80 percent of copper, generating trillions of dollars annually.

To determine how each country performs, the Index looks at four key areas of transparency and accountability:

• Safeguards and Quality Controls: the presence and quality of checks and oversight mechanisms that encourage integrity and guard against conflicts of interest.

• Enabling Environment: the broader governance environment, based on more than 30 external measures of accountability, government effectiveness, rule of law, corruption and democracy.

Of the 58 Index countries, only 11 are doing a satisfactory job ranking high in all four criteria. In Latin America, six countries - Brazil, Chile, Colombia, Mexico, Trinidad and Tobago, and Peru - all earned satisfactory composite scores while Ecuador, Venezuela and Bolivia, received only partially satisfactory scores.

Overall, Trinidad and Tobago scored 74 out of 100 and had the highest score in the region in the reporting practices category. Transparent and regular reporting on key financial and production data is often taken for granted in resource rich countries and they have struggled with this great paradox for far too long. The opportunity for these nations to experience social and economic independence is there—the problem is too often weak institutions, corruption and a lack of transparency and accountability obstruct the path to development.

Some countries prove it is possible to lift the veil of secrecy and meet higher standards of transparency and accountability. “The Index research reveals a governance deficit in how transparent and accountable countries are with their natural resources,” said Daniel Kaufmann, president of Revenue Watch. “But by pointing to reforming states and to solutions, we reject the tired notion of the deterministic ‘resource curse’,” Kaufmann added.

The Index offers recommendations for both highly-ranked countries like Brazil and low-ranking countries like Afghanistan. From disclosing contracts to passing a freedom of information act to improving state-owned company oversight, there are many ways for governments of resource-rich countries to become more effective and accountable to their citizens.

“As a mature oil and gas province Trinidad and Tobago has to always take steps to bolster investor confidence and part of this is constantly analysing where we stand in leading global indices such as the Revenue Governance Index,” said Energy Chamber CEO Dr Thackwray Driver. “As we make steps to become fully compliant with the Extractive Industries Transparency Initiative (EITI) and make improvements to the shortfalls identified in the report we can send a positive message to the investor community. It is also encouraging to see the performance of the country’s Heritage and Stabilisation Fund being commended as well as the Ministry of Energy and Energy Affairs’ data distribution being praised. We think the Ministry’s energy bulletins provide valuable information and are underutilised. ”

Trinidad and Tobago

Background
Trinidad and Tobago is the Caribbean’s leading petroleum producer, with oil and gas generating 44 percent of government revenues in 2011. In recent years it has become a major exporter of liquefied natural gas. The extractive sector as a whole accounted for 37 percent of gross domestic product and 66 percent of exports in 2010.

Trinidad and Tobago’s performance on the RGI
Trinidad and Tobago received a “satisfactory” score of 74, ranking 10th out of 58 countries. It scored particularly well on the Safeguards and Quality Controls component.

The Energy and Energy Affairs Ministry grants licenses following a competitive bidding process and regulates the sector. Board of Inland Revenue collects taxes, while the ministry collects royalties and other payments. All revenues are received in cash and deposited in the treasury.

Environmental impact assessments are required and often include a voluntary social impact component. A freedom of information act allows the public access to government documents, but the act does not apply to private or state-owned companies. In an effort to further improve transparency, Trinidad and Tobago became an Extractive Industries Transparency Initiative candidate in 2011.

Reporting Practices (Rank: 5th/58 Score: 83/100)
The government publishes useful data on most aspects of the petroleum industry, leading to a “satisfactory” score of 83.

Information on the licensing process is publicly available. Once bidding is complete, awards and block locations are published, but contract terms are not.

The Ministries of Finance and Energy and Energy Affairs and the central bank publish comprehensive information on the petroleum sector, including reserves, prices, and production. The Finance Ministry annually reports on individual revenue streams, such as taxes, royalties, dividends, bonuses, and licensing fees. The central bank publishes information on individual companies’ production and payments. State-owned oil and gas companies publish their financial balances, but they are not included in government budget documents. The budget does include figures for the natural resource fund.

The licensing process is designed to foster competitive bidding, and regulations govern which companies may be awarded contracts. However, once companies have been selected, contract terms may be negotiated, giving the Energy and Energy Affairs Ministry discretionary powers. There is no way to appeal licensing decisions. Parliamentary oversight of the licensing process is ad hoc, and there is no requirement that petroleum companies disclose beneficial ownership.

Resource revenues are audited and subject to parliamentary and public scrutiny. Government regulators must disclose personal financial interests in the oil and gas sectors.

Enabling Environment (Rank: 19th/58 Score: 52/100)
Trinidad and Tobago’s “partial” score of 52 is due to a low ranking for budgetary openness, in contrast to higher scores for democracy, accountability, and government effectiveness.

State-owned companies (Rank: 17th/45 Score: 66/100)
Trinidad and Tobago has three fully state-owned companies, the Petroleum Company of Trinidad and Tobago, the National Gas Company, and the National Petroleum Marketing Company; it also holds an interest in several joint ventures. Nevertheless, foreign companies continue to dominate natural gas production.

State-owned companies may fund social initiatives, but do not engage in quasi-fiscal activities. Their audited annual reports are available to the public and, in the case of the National Gas Company, include information on reserves, production volumes, and prices. State-owned companies are required to disclose the financial interests and decision-making processes of their executives.

Natural Resource Fund (Rank: 2nd/23 Score: 98/100)
Trinidad and Tobago created the Heritage and Stabilization Fund in 2007 to help insulate the economy from oil and gas price fluctuations. Law requires deposits be made to the fund when oil and gas revenues exceed expectations and allows for withdrawals when revenues fall short. The fund’s auditor has noted that these regulations are broad and subject to interpretation. The Finance Ministry presents audited quarterly reports to Parliament and publishes them. Officials involved in the fund’s management are required to disclose any financial interest in the sector.